Embraer and Mitsubishi face uncertainty in the US market, as their new aircraft, the E175-E2 and MRJ-90 do not meet the current scope clause requirements in the major airline pilot union contracts. These contracts are up for re-negotiation in 2019 to take effect from 2020 to 2025, just as these new aircraft arrive in the market. With a new hybrid assembly process, Embraer has de-risked the potential for scope clauses, whether they remain the same or change.
Should the scope clauses in the US change to accept the new aircraft, regional airlines would be able to fly them in the US. But if they do not, the aircraft will be too large under the current contract and need to be operated by the major airline crews, who are typically more expensive than regional affiliates.
Nonetheless, outside of the US, both the E175-E2 and MRJ-90 will find potential customers who could take the airplane immediately, but would still need to sell compliant models in the US. While Mitsubishi does not currently make a compliant model, Embraer’s E175 has had an 85% share in US regional jet orders over the past five years, and remains a popular choice with regional airlines.
Embraer’s John Slattery estimated that there are 600 regional jets that will be required for replacement and growth over the next contract cycle, and that to ensure Embraer is well positioned to deliver either the existing or new aircraft, they have developed a hybrid assembly line that can accommodate either aircraft type.
New Aircraft Brings Opportunity for Manufacturing Change
The hybrid facility is changing production processes from the existing E1 production process to accommodate the new tooling and more automated processes used to build the E2 jet side by side. For those familiar with the Embraer facility, the new hybrid process will have fuselage joining is completed in building F-107, followed by paint in building F-20, major assembly in building F-60, with final assembly in building F-220. Over the next three years, the hybrid process will be implemented as the E2 program ramps up, with benefits both in manufacturing cost efficiency and quality. The result will be that any mix of E1 or E2 jets can be accommodated on the same production line, depending on customer demand.
Embraer, who have introduced 13 new aircraft in the last 14 years, focused on innovative production processes for the Legacy 500 program, which started with a clean sheet manufacturing concept. Improvements resulting from that program included a more deeply structured make-buy decision process with suppliers. Following that, new tooling on the KC390 further aided the automation process for the E2. These changes have been incorporated into the E2, and enabled Embraer to develop the hybrid manufacturing process to produce either E1 or E2 aircraft in the same facilities.
The Bottom Line
Whichever way the scope clause decision falls, Embraer has a potential solution. By designing the plant to accommodate both the E1 and E2 series, should the scope increase be approved, Embraer can quickly move to all E2 production. However, if scope restrictions remain, the company can continue to build the E175 alongside the E175-E2 and other members of the E2 family seamlessly. Embraer has de-risked the contingency of the scope clause decision remaining too restrictive for the E175-E2 in the US market. Embraer will offer a product for the US market, and expects to capture the majority share of the 600 aircraft to be needed for replacement and growth over the next contract period.
United Air Lines will be the first of the major carriers to renegotiate their contracts, and we will know the result of their negotiations next year. The question of scope clauses centers about the concessions major carriers will need to provide the unions to enable the new aircraft to enter regional fleets. A compromise solution may be to allow slightly higher gross weights, while restricting the number of seats to the current 76 seats limit. But we will need to wait to see the results and whether the current pilot shortage impacts collective bargaining power. But either way, Embraer has a production solution.